Feature

UK U-turn on renewable energy?

12 July 2011David Hopwood

Clean Energy investment in the United Kingdom dropped by 70% in 2010, and the nation's position among G-20 leaders fell from fifth in 2009 to 13th, according to new research released by The Pew Charitable Trusts.

Even though this partly relates to 2009's massive offshore wind Round 2 of financing not being replicated in 2010, the figures are sobering, especially in light of the recent body blow that the solar sector has sustained on the political front.

Eighteen months ago, things were looking decidedly rosy in the UK renewables garden, with the then Secretary of State for Energy and Climate Change Ed Miliband having taken constructive steps to increase support for energy efficiency and renewables.

Miliband piloted through a Feed-in Tariff (FiT) for small scale renewable electricity, and promised a similar Renewable Heat Incentive to expand the use of biomass heat, heat pumps and solar thermal (which has just been carried forward by the current Government). In office he also outlined strong measures to improve energy efficiency. His Household Energy Management Strategy has largely been adopted today as the Green Deal.

Renewable Energy, it seemed, was enjoying an increasing public – and political – acceptability.

“Greenest Government” ever?

Then came the election, out went Labour, in came the Conservative/Lib Dem coalition, and despite claiming it was going to be the “Greenest Government ever”, worrying trends are emerging for renewable energy.

Is this just a case of the UK's treasury cutting its coat according to its cloth, and therefore switching support to what it perceives are the cheaper forms of renewables?

Or, is the traditional energy system status quo, in which the renewables industry is held back at the expense of the ‘conventional’ energy industry, beginning to re-emerge?

The Green Investment Bank for example, is a flagship Government environmental policy and manifesto pledge that was supposed to offer support to clean technologies.

Because private sector banks are unwilling to take risks on new technologies and some large infrastructure projects, the backing of a Government-funded bank could help to attract private sector investment, as it would remove some of the risk associated with early-stage investments. But it has been beset by disagreements between the Treasury and politicians, and according to the recent Budget a policy ‘fudge’ will mean that the bank will not actually be able to borrow any money before 2015, and only then if “the target for [national] debt to be falling as a percentage of GDP has been met.”

Initially, it will be capitalised with £3bn of Government cash, but will this be fit for – what was – the original purpose? Vincent Neate, KPMG's head of climate change & sustainability says that this will not be enough to bring certainty to investors: “The earlier start and extra funding is very welcome, but it is not entirely clear what the Government is aiming to achieve; is it subsidised investing in otherwise uneconomic projects? Or a necessary intervention that will nevertheless generate a return?

“The market is looking for mechanisms to invest, more than for funding itself, lack of which isn't the key issue when it comes to low-carbon project development. The real challenge is making ‘green’ investment relatively more attractive to increase the appetite for it, altering standard investment models.

“So, robust incentives on the back of the Green Investment Bank would be a valuable additional measure for moving the UK towards meeting its renewable energy targets, which [£3bn] of funding is unlikely to greatly influence given the scale of the investment required,” Neate concludes.

Solar slasher

But perhaps the headline issue that has infuriated parts of the renewable energy industry is the expected u-turn on solar subsidies. Fallout from this decision to massively curtail the growing solar PV industry continues, with criticism coming from many quarters.

The Government wants to cut the subsidy for installations producing 50kW to 150kW from 32.9p/kWh to 19p; while installations producing over 150kW will have their subsidy cut from 30.7p to 15.7p. Solar farms producing over 250kW would receive only 8.5p.

The rationale for this reduction is the desire to avoid huge solar projects hoovering up the FiT budget “to the tune of £360 million” according to FiT expert Miguel Mendonca – which, taken at face value would appear to make sense considering the problems that Spain encountered. But the counter argument, Mendonca says, is that “this is exactly the kind of investment structure which we need to allow if we are to reach useful deployment levels, and bring down solar costs through economies of scale”.

Community development?

Also, Mendonca continues, “the Government argues that the point of the FiT is to involve urban society mainly, and spread the opportunities to do so, rather than encourage institutional investors to make the money and draw it out of those communities, or off farmland”.

The important word here is ‘communities’. As many people have pointed out, there is a difference between the huge investor-driven farms the Government doesn't want to fund, and community solar projects that will bring real financial, social, not to mention environmental benefits to communities. Under the proposed reductions, these community projects would suffer the same fate as the large, investor-driven projects.

This Community-Benefit model is vital, according to Mendonca: “Where people are looking to marry the interests of communities with those of institutional investors, one may find installations of reasonable size with reasonable returns and benefits for all. Most importantly, when applied to social housing, it rebalances the costs with social benefits. If these properties can be successfully treated with energy efficiency measures under the Green Deal, the fuel poor will be vastly better off through these complementary policy tools”.

David Hunt, a director with Liverpool-headquartered Eco Environments, adds, “while we accept that solar farm scale projects of 1 MW plus do warrant review…there is a huge gulf between 50 kWp and 1 MW. This decision seriously impacts on community projects and businesses trying to reduce their energy bills and their carbon footprints”.

Andrew Lee, head of International Sales at Sharp Solar, Europe's biggest solar manufacturer which has invested heavily in the UK, added that “the announcement by Greg Barker effectively destroys the solar industry for installations above 50kW”.

He said he agreed that the issue of solar farms needed to be addressed, however “this over-zealous proposal will wipe out community projects like installations on schools, hospitals and churches, will halt business and industrial investment, and will limit solar to small-scale domestic projects. This is terrible news for the renewable energy sector – the steep rise in job creation will stop and morale within the industry will drop as a result of this remarkable u-turn.”

David Cameron's Big Society

Aside from the financial implications of a FiT, perhaps one of the most important political disconnects seems to be between what Prime Minister David Cameron orates on his wish to see a ‘big society’ (where individuals and communities have the right to take ownership of local assets), and the policy decisions that reflect this.

According to Michael Rieley – a solar consultant at Taylor Hopkinson Associates, “apart from lifestyle changes, there is very little that individuals or communities can do to make a real difference to the energy saving debate. Getting involved with community-based renewable energy projects offer one of the few direct and tangible actions a person can take to reduce carbon emissions significantly. It is also the only way we can make a stand against rising bills and the insecurity of supply”.

Miguel Mendonca concurs: “What has been most striking is the role of “social glue” played by the FiT. A wide variety of, in some cases formerly disparate interests, are now able to work together through this policy. This includes national and local Government, planners, investors, financial institutions, insurers, legal firms, large energy companies, SMEs, entrepreneurs, farmers, tradesmen, NGOs, charities, schools, universities, training companies, think tanks, community groups and householders…if the FiT is so effective at allowing for this kind of activity, how is it that the Government can allow it to be threatened? It begs the question, what is the level of ambition from Government on micro-generation?”

Large scale power - nuclear sleight of hand?

Perhaps politically interesting is to look at some of the above developments in the wider context of the ‘nuclear vs. renewable energy’ debate.

Many have said that a mix of all technologies is needed moving forward – renewable energy and nuclear included in that. But are the developments in the UK simply another way of the Government shifting its perceived support for renewables back to new nuclear?

According to Mendonca, “we knew from the outset that around two percent of UK energy was expected to be delivered through the FiT, giving weight to the remark that Solar FiTs are seen in Westminster as being ‘for hobbyists, not lobbyists’. We can take that to mean that the emphasis will remain on large-scale generation. In view of the 25 GW energy gap expected over the next few years, as the UK loses 14 major coal-fired and nuclear power stations, this is not especially surprising”.

With Offshore Wind predicted to ultimately produce power in the UK on a seriously large scale, the Government's 3-Round licensing strategy is to build up a world leading offshore wind supply chain, which will have a defined economic benefit to the UK, rather than a FiT which (the UK installation industry excepted) would see a proportion of the money sucked out of the country to foreign companies producing solar panels.

But if offshore wind trumps solar on the economic benefit front, what about nuclear?

The renewable energy industry was relieved to hear that both the Conservative and Liberal Democrat election platforms said that there would be no subsidies for nuclear power stations.

But some believe that the Government's Electricity Market Reform (EMR) consultation document, issued in December 2010, is actually designed to do just this. Provide a nuclear subsidy.

According to David Toke, a senior lecturer in Energy Policy in the Department of Political Science and International Studies in the University of Birmingham, and a key player in the campaign to establish the FiT, “the Government seems to be on the way to pulling off a conjuring trick of shifting incentives towards nuclear and away from renewables without hardly a whimper of opposition…people have not twigged the fact that despite Government support for new nuclear being heralded since 2006, it is only with the publication of the EMR that the funding, yes, the subsidies, that can make this actually happen, seems likely to materialise. Also, people do not fully realise that the Government's proposals seriously threaten the existing renewable energy programme.”

According to Michael Liebreich of Bloomberg New Energy Finance, speaking at the launch of the Pew Charitable Trusts' Who's winning the Clean Energy Race (2010 edition) report, the UK's EMR is the battle for the soul of energy policy moving forward. In other words, will the UK really commit to more offshore wind as a concept – and in doing so link offshore wind farms with those in other regions to balance out the intermittency issues for example – or will low carbon ‘new nuclear’ be the choice going forward?

And then where does nuclear stand in light of the recent tragic events in Japan? While some countries such as Germany and China are re-evaluating their nuclear futures in light of the safety concerns resulting from the problems at the Fukushima Dai-ichi nuclear plant, the UK Government seems keen to press ahead with its own nuclear programme, despite claims to the contrary (in an interview with the Observer, current energy and climate change secretary Chris Huhne insisted that he would not “rush to judgment” until the implications of the disaster were known, and a report into the safety of UK nuclear plants by the chief nuclear officer, Dr Mike Weightman, was complete. The interim findings are due in May.

Many suspect though that this report will offer support to new nuclear development despite the issues in Japan, something the Government could then seize on to push ahead with its program, backed up by the EMR. EDF, for example, the French power giant that is building new reactors in Britain, said that its plans were developing unhindered.

German Chancellor Angela Merkel on the other hand has already announced the closure of 7 reactors and Germany's ‘measured exit’ from nuclear power production.

Falling into the EU line

In the UK, the ‘renaissance’ of nuclear seems to mirror the situation in Europe where lobbyists have succeeded in making sure that the green energy dialogue is now all about “low carbon”. Low carbon, of course, includes nuclear as an option.

Firebrand Claude Turmes from the European Parliament took the opportunity at the European Wind Energy Conference (EWEC 2011) in Brussels to rail at what he described as the low-carbon gang:

Before Fukushima, new nuclear appeared to be winning the battle (as recent developments mentioned earlier in this article would bear testament to).

Now, perhaps, the issue has become even more clouded. And this appears to be backed up in the UK too by the recent comments of Chris Huhne.

Investor lack of confidence

Time will tell exactly how much of a nuclear renaissance there will be now, but in some ways this is a moot point. Going back to the fall in clean energy investment last year, and it is clear that the developments in the UK may worry renewable energy investors, and lead to their exit from the UK.

Some even argue that the cut back in the FiT is not so far off being as negative for investment as the retroactive changes made to Spain's FiT.

Howard Johns, chairman of the Solar Trade Association, says: “The solar industry is one of the genuine good news stories in the UK today, providing jobs, a new green industry and importantly some hope. Crushing it at this time is a serious strategic mistake, but inevitable when it appears to be Treasury, not DECC, dictating energy policy.”

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